Weak U.S. pulls FTSE into red

Bank of England leaves rates unchanged

LONDON (CBS.MW) - A declining U.S. market pulled London lower Thursday despite early gains from life insurer Royal & Sun Alliance, which kept its dividend for 2002 within the range expected by analysts.

The FTSE 100 index (1805550) ended down 8.1 points, or 0.23 percent, at 3,555.40, while European markets fell more strongly.

The Bank of England on Thursday left its key benchmark rate unchanged. The FTSE 100 barely moved at the time, only a 0.05 percent drop after the decision was announced.

The BoE key's repo rate stays at a 48-year-low at 3.75 percent. Economists were not forecasting a rate cut from the bank on Thursday. The BoE surprised markets on Feb. 6 with a quarter point cut. Since then, Merrill Lynch noted the bank has upped its inflation forecast for the next 2 years and sterling has fallen by 4 percent. See full story on Bank of England and European Central Bank decisions.

The European Central Bank's key short-term rate was lowered from 2.75 percent to 2.5 percent, not as bold as the half point cut economists had hoped for. See full story on European markets.

In company news, Life insurer Royal & Sun Alliance (RSA)
RSA, +0.56%
rose 1.1 percent after investors were relieved that it did not cut its dividend altogether.

RSA said group operating profit for the year rose to 226 million pounds, against 16 million pounds a year-ago. It set a final dividend of 2p and the dividend for 2002 at 6p a share vs. 16p a year ago. Analysts had expected a dividend in the range of 4-12p a share. The loss attributable to shareholders of rose to 940 million from 889 million, reflecting goodwill write-off and investment value declines, it said.

It also tried to assure investors on solvency concerns. "The recent announcement by the FSA [the U.K. financial regulator] of the move to realistic balance sheets for life solvency is welcomed as a practical and sensible development. The impact for the group is likely to be positive. We will continue to manage the run off of the UK Life funds to maximize the release of capital, while meeting regulatory requirements," the company said.

The news helped soothe other insurers before the afternoon sell-off. Aviva (AV) declined 3.1 percent and Legal & General (LGEN) was off 0.4 percent. Friends Provident continued their downward path from Wednesday, losing 11.4 percent.

Prudential plc
PUK, -0.15%
(PRU) traded 3.6 percent lower after being fined 750,000 pounds ($1.1 million) on Thursday by the U.K. Financial Services Authority over mis-selling endowment mortgages by its Scottish Amicable subsidiary. "The failings arose because advisers did not place appropriate emphasis on identifying whether a customer was prepared to take the risk that their mortgage might not be repaid at the end of the term," the FSA said.

P&O profits halved

It said operating profit declined to 121.0 million pounds in 2002 from 273.6 million in 2001, due to deterioration at P&O Nedlloyd and a decline in contribution from property investments.

Morgan Stanley on Thursday downgraded its rating on IT consultant and telecom services LogicaCMG (LOG) to underweight from equal-weight and lowered its price target on the stock to 90p from 130p, hitting shares by 6.5 percent. "Uncertainty over telecom revenues and costs, coupled with Logica's deteriorating balance sheet means that we move to underweight and draw investors' attention to the rising risk profile of the group," it said.

British property investor Liberty International (LII) was up 0.71 percent after it was downgraded by JPMorgan to neutral. Analyst James Muir said he was concerned with the valuation of its shopping center portfolio, because he expects capital growth to slow, and its exposure to Central London. "The stock does not offer the upside that we estimate is offered by the diversified stocks, such as British Land, Hammerson and Land Securities," Muir said.

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